Monday, April 20, 2009

More Gloom Than Doom: Commercial Real Estate

In a general review article this morning by Dees Stribling in, the headline is "Economic Update - Commercial RE on the Edge?" That's a bit, well more than a bit, hyperbolic, particularly from a Texas vantage point.

There is much handwringing in the financial press about the near future of commercial real estate, which so far has fared okay compared to the residential sector. Notes Stribling:

The idea that commercial real estate might be the next big thing to implode--which is all too familiar within the commercial real estate industry--is finally getting some mainstream attention. On Saturday, speaking at a conference at Vanderbilt University, Atlanta Federal Reserve Bank president Dennis Lockhart said that "on our watch list this year, as a risk to the (U.S. economic) outlook, is continuing worsening in the commercial real estate sector."

Oh my. An economist mentioned commercial real estate as something they will watch this year. And it generates a doom and gloom headline. This is a classic Soros investing tactic: identify when everyone else is wrong, then do the opposite of what they're doing. So if there is more fear in the commercial sector than is warranted (and that requires some analysis with horsepower), then investors will find some good opportunities, particularly in markets and submarkets where the fear or "gloom" may be particularly unjustified. I see those all around me where I live and write.

So watch those barometers.

Take this paragraph from the same article:

Whatever else commercial real estate will be in the near- to medium term, it certainly won't see the investment volume of recent years, not only in the United States but almost everywhere in the world. According to Real Capital Analytics, about 1,000 buildings valued at $47 billion traded hands worldwide in the first quarter of 2009, a small fraction--about 16 percent--of the volume during the same period in 2007.

Did you catch that? Only 16% of last year! Yeah, but there were still about 1,000 buildings valued at $47 billion in this past quarter sold. Last I thought about it, $47 billion is still a lot of money. Certainly it's enough for nimble and aggressive investors and brokers with buying power -- and in the right markets such as Houston.